Position sizing
The process of determining how many contracts to trade on a given setup, typically based on a fixed-dollar risk and the stop distance.
Position sizing is the math layer between your trade plan and your account. Given a fixed-dollar risk you're willing to lose on the trade and a stop distance defined by the setup, the position size is calculated as: risk ÷ (stop distance in ticks × tick value).
Fixed-dollar position sizing is the most important risk discipline in prop trading. Same dollar risk on every trade, regardless of conviction or recent results. Inconsistent sizing — sizing up after losses, sizing down after wins — is the most common cause of blown evaluations and funded accounts.
Examples
- Max risk $200. ES setup with 8-tick stop. Tick value $12.50. Position size: $200 ÷ (8 × $12.50) = 2 contracts.
- Same $200 max risk, NQ setup with 12-tick stop, tick value $5. Position size: $200 ÷ (12 × $5) = 3.33 → round down to 3 contracts.
Related terms
- Bracket order
A protective pair of orders — a stop loss and a profit target — attached to an entry as a one-cancels-other group.
- Tick
The smallest allowable price increment for a given futures contract — and the unit most prop traders count P&L in.
- Drawdown buffer (safety buffer)
A self-imposed limit inside the firm's actual limit — your guardrail before the firm's guardrail.
- Risk-reward ratio (R:R)
The ratio of potential profit to potential loss on a single trade — typically expressed as 1:N where N is the multiple of risk you're targeting.